QUESTIONS & ANSWERS CHAP. 08
8-1
True. The value of a share of stock is the PV of its expected future dividends. If the two investors expect the same future dividend stream, and they agree on the stock's riskiness, then they should reach similar co
CHAPTER 8
8-1
DPS CALCULATION
WARR CORPORATION just paid a dividend of $1.50 a share (i.e., D0=$1.50). The dividend is expected to grow 5 percent a year for the next 3 years, and then 10 percent a year thereafter. WHAT IS THE EXPECTED DIVIDEND PER
CHAPTER 7
7-1
BOND VALUATION
Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8 percent. The bonds have a yield to maturity of 9 percent. WHAT
QUESTIONS & ANSWERS CHAP. 04
4-1
Financial intermediaries are business organizations that receive funds in one form and repackage them for the use of those who need funds. Through financial intermediation, resources are allocated more effectively,
QUESTIONS & ANSWERS TO CHAP. 07 7-1 7-2 Yes, the statement is true. False. Short-term bond prices are less sensitive than long-term bond prices to interest rate changes because funds invested in short-term bonds can be reinvested at the new interest
CHAPTER 6
6-1
FUTURE VALUE
If you deposit $10,000 in a bank account that pays 10 percent interest annually, HOW MUCH MONEY WILL BE IN YOUR ACCOUNT AFTER 5 YEARS?
0
10%
1
2
3
4
5 FV5 = ?
PV = 10,000
FV5
= =
$10,000(1.10)5 $10,000(1.61051)
6-9
LOAN AMORTIZATION AND EFFECTIVE INTEREST RATE
You are thinking about buying a car, and a local bank is willing to lend you $20,000 to buy the car. Under the terms of the loan, it will be fully amortized over 5 years (60 months), and the nominal
6-20
NOMINAL COMPOUNDING
a.
It is now January 1, 2003. You plan to make 5 deposits of $100 each, one every 6 months, with the first payment being made today. IF THE BANK PAYS A NOMINAL INTEREST RATE OF 12 PERCENT, BUT USES SEMIANNUAL COMPOUNDING, H
CHAPTER 6
6-1
FUTURE VALUE
If you deposit $10,000 in a bank account that pays 10 percent interest annually, HOW MUCH MONEY WILL BE IN YOUR ACCOUNT AFTER 5 YEARS?
0
10%
1
2
3
4
5 FV5 = ?
PV = 10,000 PV (1 + i)n $10,000(1.10)5 $10,000(1.61051)
QUESTIONS & ANSWERS CHAP. 05 5-1 a. The probability distribution for complete certainty is a vertical line. b. The probability distribution for total uncertainty is the x-axis from - to +. 5-2 Security A is less risky if held in a diversified portfol
CHAPTER 4
4-1
EXPECTED RATE OF INTEREST
The real risk-free rate of interest is 3 percent. Inflation is expected to be 2 percent this year and 4 percent during the next 2 years. Assume that the maturity risk premium is zero. WHAT IS THE YIELD ON 2-Y
CHAPTER 3
3-1
DAYS SALES OUTSTANDING
Baker Brothers has a DSO of 40 days. The company's annual sales are $7,300,000. (Assume there are 365 days in a year.) WHAT IS THE LEVEL OF ITS ACCOUNTS RECEIVABLE?
GIVEN:
Days Sales Outs tan ding S AR
40 day
CHAPTER 2 FINANCE PROBLEMS AND SOLUTIONS
2-1
INCOME STATEMENT
Little Books Inc. recently reported net income of $3 million. Its operating income (EBIT) was $6 million, and the company pays a 40 percent tax rate. WHAT WAS THE COMPANY'S INTEREST EXPE
Note: Assigned Q&A are 1, 6, & 8.the balance of questions below are for your enrichment QUESTIONS & ANSWERS CHAP. 03 3-1 The emphasis of the various types of analysts is by no means uniform nor should it be. Management is interested in all types of r
CHAPTER TWO: QUESTIONS & ANSWERS
2-1
The four financial statements contained in most annual reports are
the balance sheet, income statement, statement of retained
earnings, and the statement of cash flows.
2-2
It is not the case that a board can announce
1-1
THREE FORMS OF BUSINESS: 1. SOLE PROPRIETORSHIP 2. PARTNERSHIP 3. CORPORATION
The ADVANTAGES of the SOLE PROPRIETORSHIP AND THE PARTNERSHIP include 1. the ease/simplicity of forming the business 2. low cost of business formation and 3. fewer ove